Upon reflection, a new foreign policy emerges: Mines are ours

At the beginning of 2022, François-Philippe Champagne, the federal minister of innovation, science and industry, seemed confident that a Canadian-owned lithium mine in Argentina had little to do with Canada’s national security or its automotive industry.

By the fall, he and the federal government seemed to have reconsidered.

On Oct. 28, Champagne announced changes to the Investment Canada Act (ICA) that will put foreign state-owned companies looking to invest in Canada’s critical-mineral sector through the wringer. He followed that up Nov. 2 by ordering a trio of China-based companies to divest their interests in three Canadian lithium miners developing projects in Argentina, Chile and Canada, following national security reviews.

“While Canada continues to welcome foreign direct investment, we will act decisively when investments threaten our national security and our critical-minerals supply chains, both at home and abroad,” he said in a release.

The comment was in stark contrast to government inaction in late 2021 when Zijin Mining Group Co., a China-based miner with state-owned investors, proposed a takeover of Torontobased Neo Lithium Corp.

That deal closed Jan. 26 without intervention from Ottawa but it prompted parliamentary hearings to investigate whether the acquisition should have been put through a more rigorous review. In testimony at the time, Champagne pointed to Neo Lithium’s mine being in Argentina, and to EVs in North America relying on a different form of lithium, as reasons to not put the deal under the microscope.

Yet the government has clearly changed its stance on the file in the intervening months. The changes to the ICA will make all such deals in the critical-mineral sector subject to further review, with approvals granted only on an “exceptional basis.”

For the divestiture order handed to the three companies, Ottawa did not single out China. With Chinese-state-owned firms snapping up interests in global mining projects, and the country already controlling about two thirds of global processing capacity for lithium and many other battery materials, it hardly had to.

Meanwhile, Champagne signaled the intent to deepen ties with “partners that share our interests and values” to help get costly mining developments off the ground.

Canada is not alone in enacting policy to deal more closely with its allies, a trend that U.S. Treasury Secretary Janet Yellen dubbed “friend-shoring.”

The United States took a more subtle step this summer to offset some of China’s early lead on batteries. To qualify for the US $7,500 electric-vehicle incentive offered under the Inflation Reduction Act, automakers must ensure that their EVs use battery materials sourced and processed in friendly jurisdictions. Vehicles with any battery materials from state-owned China-based companies are ineligible for the credit under “foreign entity of concern” restrictions.

The inclement geopolitical climate and the Canadian government’s about-face on mine ownership will likely prove positive for the Canadian auto industry and its battery supply chain.

As opposed to Canadian-controlled mines at home and abroad feeding China’s lithium-ion battery industry, investments in local processing plants will create Canadian jobs, generate greater demand for homegrown mines and keep the current automotive supply chain onshore.

“Increasing demand for these all-important minerals are presenting Canada with a generational economic opportunity,” Champagne said. “We are committed to seizing that opportunity.”